Repurchase And Securities Lending Agreements

A repo transaction is a kind of short-term cash loan and is widely regarded as the closest brother to borrowing securities. For the party that sells security and agrees to buy it back in the future, it is a repo; for the party at the other end of the transaction, the purchase of the warranty and the consent to sell in the future, it is a reverse buyback contract. One of the keys to these operations is that they have a short-term duration. There may be buybacks that happen overnight. On the other hand, there are buybacks that can last several months. The AEMF guidelines for ETFs also require the possibility of an early expiry of the transaction. This means that each party may demand at any time the cessation of the operation and its return to its original status. It even requires that this requirement be met for transactions lasting less than 7 days. However, in this case, there will be a penalty that will be reflected in less interest to the original buyer.

Receipt of government bonds as collateral for securities (or cash) Chart 7: Comparison of pension and credit instruments on securities at a specified maturity date (usually the following day or the following week) are long-term pension transactions. A trader sells securities to a counterparty with the agreement that he will buy them back at a higher price at a given time. In this agreement, the counterparty receives the use of the securities for the duration of the transaction and receives interest that is indicated as the difference between the initial selling price and the purchase price. The interest rate is set and interest is paid at maturity by the trader. A Repo term is used to invest cash or to finance assets when the parties know how long it will take them. Managers use the two effective portfolio management techniques for two different purposes. Investment funds use investments in deposits to deal with unexpected or massive repayments. Therefore, in order to obtain exceptional liquidity to enable them to meet their obligations to repay the investment. These operations will be included in KIID and their maturity will also be explained. This is how deposits are made as a financing operation for the investment fund.

Managers could also use a seller to finance the purchase of securities. So, after the fund buys a new security to invest, managers could sell it temporarily. The proceeds from this sale are used to finance the money that was paid for its purchase. On the contrary, securities lending is used to achieve exceptional returns. These returns translate into revenue for the manager and a higher net inventory value of the fund. It is also used to reduce the fund`s costs. The securities loan is a contract between the ETF manager, the lender and a third party, the borrower. The lender then transfers to one-third of the securities in the ETF portfolio for a fee. In addition to collecting this fee, the lender also receives guarantees from the borrower.

These guarantees may be a pool of other securities or other liquidity. The purpose of the guarantee is to guarantee flows for the lender if the borrower does not return the borrowed securities. It is therefore justified because the loan itself carries a counterparty risk. This risk arises from the default situation of the counterparty. In order to reduce counterparty risk, investment fund managers can take several steps.